Some $43 million of investments held by Maui County and the City and County of Honolulu have been rendered essentially untouchable by the collapse of the auction rate securities market 18 months ago.

Although the county governments could probably sell the investments at a steep discount to speciality brokers, they said they don't need to access the money and are receiving interest payments while waiting for a solution to the situation.

The counties, like the state of Hawai'i and thousands of other investors ranging from other states to Starbucks Corp. and individual investors, have been affected by the freezing of the auction rate securities market. That's trapped billions of dollars in the securities that can't be sold, but do pay a higher interest rate while the market remains stuck.

"We do have an exposure to auction-rate securities," said Kalbert Young, Maui County finance director, explaining the county has $40 million tied up in the market. He said the county has plenty of other cash to meet its day-do-day obligations.

Auction-rate securities are a little-known part of the financial world that operated efficiently up until February 2008, when bond insurance worries and the credit market resulted in the collapse of trading. Auction-rate securities featured a higher return than comparable short-term investments, with investors being able to move in and out of the market through auctions that occurred every week or month.

As such, the auction rate securities were often marketed as a "near cash equivalent," meaning the investments could be easily converted to cash. This was backed up by a pledge by most sellers to repurchase the securities themselves should the periodic auctions fail to attract bidders.

"They were a good thing — you were getting a lot of bang for your buck," said David Spanski, Kaua'i County treasurer. "They worked really well."

That is up until the market crashed, trapping an estimated $160 billion. The collapse prompted regulators to investigate, while New York Attorney General Andrew Cuomo sued several investment banks, winning agreements to buy out some investors at 100 cents on the dollar.

It was through one of those agreements that Kaua'i County was able to get back $4 million it had invested with UBS AG.

"As soon as we got an opportunity to get out, we got out," Spanski said. He said that occurred earlier this year and that the county had experienced no liquidity problems because of the collapse.

Maui County also managed to get UBS to agree to repay $4 million. That leaves the $40 million it had invested with Merrill Lynch. Hawai'i County Finance Director Nancy Crawford said the Big Island government had no exposure, since it didn't hold auction rate securities.

The City and County of Honolulu's exposure is $3 million it bought through Smith Barney Morgan Stanley, spokesman Bill Brennan said. He said the bank had offered to buy the investment back for 77 cents on the dollar, which the city didn't accept.

The state is holding $1 billion of the auction rate securities and has said it can hold on to the investments for now because it has plenty of other funds available to pay bills and fund projects. One feature of the investments is they pay higher interest rates should auctions fail.

The state has been getting that higher interest rate along with receiving the full principal for the past 18 months. The state is also waiting to see if its broker, Salomon Smith Barney, can meet its commitment to the Securities and Exchange Commission to use its best efforts to repay large investors by the end of 2009.

It has already bought back the securities from smaller investors.

"If you're not tight for cash, you're probably fine," said Hawai'i County's Crawford.

Maui County's Young said his investments are now earning more than 1 percentage point more than comparable investments.

Still, the county is in discussion with Merrill Lynch about the investments. So far, the investment bank's offers haven't been suitable.

"We have not accepted any offers as being substantial or being sufficient for the County of Maui yet," Young said.

Maui and the City and County of Honolulu also have filed complaints with the state Department of Commerce and Consumer Affairs about their brokers, though haven't gone as far as filing lawsuits.

Tung Chan, Hawai'i Commissioner of Securities, declined to discuss the specific complaints aside from confirming they had been filed.

"We are in the process of investigating," she said. Chan also said complaints about auction rate securities had been filed by other investors.

She said in general the office can investigate complaints to check whether any securities violations occurred, such as whether sales representations were made that the investments were cash equivalents, or whether proper disclosure was made about risks.

If the investigations do turn up violations, her office can order the sellers pay back whatever was invested. It can also order penalties or bar the seller from operating in the state.